Steffensen v BGW Investments Limited (formerly Broadbase Otago Limited) (since struck off)
[2014] NZHC 2659
•31 October 2014
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV 2011-012-000519 [2014] NZHC 2659
BETWEEN RODNEY STEFFENSEN and ALYSON
KAY STEFFENSEN Plaintiffs
AND
BGW INVESTMENTS LIMITED (formerly Broadbase Otago Limited) (since struck off)
First Defendant
QBE INSURANCE (INTERNATIONAL) LIMITED
Second Defendant
Hearing: (On Papers) Judgment:
31 October 2014
JUDGMENT OF WHATA J
[1] In my judgment1 in this matter I found that QBE Insurance (International
Ltd) (QBE) must pay the Steffensens the following sums:
(a) AUD$13,350 in equivalent New Zealand dollars for the loss of opportunity to use the proceeds of sale of the BT & JBWere equities as at January 2008 together with interest at a rate to be determined to the date of judgment; and
(b) NZD$15,000 to each of the plaintiffs for general damages.
[2] I sought submissions in relation to the following issues:
1 Steffensen v BGW Investments Ltd (formerly Broadbase Otago Ltd) [2014] NZHC 1828.
STEFFENSEN v BGW INVESTMENTS LIMITED (formerly Broadbase Otago Limited) [2014] NZHC 2659 [31 October 2014]
(a) the currency effect in terms of measuring the New Zealand equivalent value of the loss as at January 2008;
(b) the interest to be applied from 1 January 2008;
(c) the return of fees, the excess and deductible payable; and
(d) the issue of costs.
[3] The Steffensens have also highlighted an error with the judgment, namely that it does not include the amount of loss associated with the failure to carry out the instruction to sell the BT property fund. They also submit that the date of the value of the Equity Funds should be 30 January not 31 January 2008.
[4] I propose to address each of these issues in turn, together with the error identified by the Steffensens.
Preliminary observation
[5] I preface my discussion of the following issues by reminding the parties that the driving principle is:2
… the objective of contractual damages, ie to compensate the innocent party
for the loss of value of the promised performance.
Currency
[6] The plaintiffs identified the applicable currency rate as at 1 January as
0.876894. The second defendant prefers the applicable currency rate as at 30
January, namely 1.138930. This date has been chosen by the defendant because I
said in the judgment that:3
… the measure of the lost opportunity is relatively clear as at 30 January
2008. …
2 New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 (HC) at 463 per Tipping J and quoted in P Blanchard Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at 48.
3 Steffensen v BGW Investments Ltd (formerly Broadbase Otago Ltd), above n 1, at [79].
[7] I prefer to use the currency rate at 1 January 2008. Had the instructions been followed, the sale proceeds would have been obtained by at least this date. While this does not precisely align with the available evidence in terms of the measure of loss, I am satisfied that the objective of contractual damages is better achieved by fixing the currency exchange rate at this earlier date. Having said that, in terms of the base measure of primary loss per se, I must rely on the evidence exchanged at the hearing. The only evidence seeking to measure loss as at January 2008 was given by Mr Maud. I do not consider it is appropriate to introduce at this late stage a different date for quantification of primary loss, without fully reopening the issue for consideration. But I consider that my judgment on that aspect was final.
Interest rate
[8] The plaintiffs seek compound interest at the average annual Judicature Act
1908 rate over the relevant period. By contrast the second defendant submits that I
should use a 90 day bank rate, as foreshadowed in my judgment.
[9] I accept the plaintiffs’ submission that the 90 day bank rate reflects a short term investment strategy, rather than the type of investment strategy that would most likely have been adopted by the Steffensens at the time. Equally, however, I do not accept that a compound interest rate is appropriate in the circumstances. The Court of Appeal confirmed in Clarkson that compound interest may be an appropriate measure for loss of use compensation.4 But it also stated that compound interest claims must be particularised in the pleadings. The plaintiffs did not seek compound interest in their pleadings. Rather they sought interest at the usual Judicature Act
rate. I am also satisfied that the Judicature Act rate interest is a fair response to the type and scale of the loss suffered and the circumstances of the loss, namely in the midst of the GFC. Conversely, a compound interest award would generate a (small) windfall rather than simply compensate the Steffensens for the loss of the use of the
money.
4 Clarkson v Whangamata Metal Supplies Ltd [2007] NZCA 590, [2008] 3 NZLR 31 at [23].
Return of fees, excess and deductible
[10] The plaintiffs seek $3,545.26 for fees paid to the first defendant. QBE contends the terms of the policy as between QBE and BGW do not extend to a refund of professional fees and it says further that the policy is subject to an excess being paid.
[11] I reject the plaintiffs’ claim for fee reimbursement and I reject the defendant’s
claim for excess for the following reasons:
(a) The damages award places the plaintiffs in the position they would have been in had the contract not been breached. The objective of the contract being satisfied, albeit in terms of an award of damages, no further compensation or restitution (in the form of a refund of fees) is necessary or just.
(b)QBE did not plead the policy terms by way of affirmative defence or in terms of the excess. Various issues arise as a consequence of this, including issues whether liability to pay the excess sits with BGW or the plaintiffs.5 In any event, the plaintiffs have been unfairly prejudiced by the late allegation as to the policy terms. For example, it would have been available to the plaintiffs to contend that a higher award of general damages is mandated in light of the excess, in order to ensure that the plaintiffs have been properly compensated for the
emotional harm done to them.
5 The excess clause simply states:
5. Excess
In respect of each and every Claim against the Insured the amount of the Excess is payable by the Insured and QBE shall only be liable to indemnify the Insured for the amount beyond the Excess up to the amount of the Limit of Indemnity.
When the amount of the Excess is shown in the Schedule as “costs exclusive” the indemnity for Costs and Expenses shall not be subject to the Excess provided always that the Claim is higher than the Excess.
For the purpose of this condition, “Claim” means any and all Valid Claims that arise
by reason of the same act, error, omission or conduct.
Costs
[12] The plaintiffs seek full solicitor/client costs based on cl 11.2 of the contract with BGW, which states:
The Client Adviser will not be liable in any way for any consequence of an Investment under Proper Instructions made by the Client against the advice of the Client Adviser but, subject to that limitation, the Client Adviser accepts liability for any direct material loss incurred as result of the fraud, wilful default or negligence of the Client Adviser but nothing else.
[13] The defendant submits that this clause is not sufficiently clear to justify a claim for solicitor/client costs.
[14] On careful reflection I agree with the defendant. First, as the Court of Appeal stated in Watson & Son Ltd v Active Manuka Honey Association:6
Prima facie, costs are fixed on a party and party basis unless the party seeking costs on an alternative basis can establish an entitlement “either on some well-recognised principle, or under some contract plainly and unambiguously expressed”: Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR
955 at 961 (Ch). This general approach is reflected in Part 14 of the High Court Rules under which costs are normally fixed on a party and party basis but may be increased or ordered on an indemnity basis under r 14.6.
[15] Second, the reference at cl 11.2 to “direct material loss incurred as result … the negligence of the Client Adviser” is not sufficiently clear in my view to warrant or require an award of indemnity costs. On the contrary, it requires a direct causal relationship between the act of negligence and the loss. Here, the quantum of client/solicitor client costs depended on a number of contingencies, including the strategy adopted by the parties to the litigation which cannot sensibly described as a “direct material” loss arising from the negligence of BGW.
[16] This is to be compared with the language used (for example) in the clause under scrutiny in Watson where the licensee was required to have insurance cover sufficient to meet the obligation “to indemnify AMHA against all actions and damages that may result from the licensee’s operations in relation to the products”.
As the Court of Appeal said, the use of the term “actions” or “damages” plainly
6 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [17].
contemplates the possibility of proceedings and the losses arising out of those proceedings.
[17] As to quantum in costs, my preliminary view is that costs on a 2B basis together with reasonable disbursements is appropriate. I am not currently persuaded (in terms of rr 14.7, 14.10 and 14.11) that the offers by QBE to settle of $38,000 as at
20 September 2012 and $95,000 as at 12 May 2014 require that the award should be reduced. The former offer did not discharge the base liability and I am doubtful that the latter offer would have been sufficient to cover both the contractual loss and the costs incurred by the plaintiffs. Even if it did, it was very late and probably of marginal value to the plaintiffs.
[18] I have also considered whether there should be an uplift in terms of r 14.6. But nothing in QBE’s conduct suggests that it has taken any step irresponsibly. On the contrary, the offer of $38,000 (and the subsequent offer of $95,000) suggests a reasonable approach has been taken by it to the proceeding. I also accept that QBE would have been reliant on the evidence given by Mr Broad as to what occurred and therefore had a proper basis for defending the claim. But I think there is some merit in the plaintiffs’ complaint that full disclosure was not completed until well into the trial process. The “major screw up” file note was not exchanged until the second day of the hearing. This would appear to justify a small uplift on costs according to scale, given that earlier disclosure may have resulted in a more focussed contest, given the obvious implications of the note.
The judgment sum
[19] As foreshadowed above, the plaintiffs have brought to my attention that my quantification of the judgment sum excluded the value of the BT property fund. My judgment was based on Mr Maud’s evidence, being the only evidence that examines the losses on the “equities” as at January 2008. Regrettably, Mr Maud did not use “equities” in the sense used by the plaintiffs in the pleadings. A corollary of this is that there is a mismatch between the value of the pleaded “Equity Funds” and the
evidence of loss. Quite plainly BGW was instructed to transfer the BT property fund.7
[20] I cannot sensibly redress this without hearing a defended application for recall and the plaintiffs have elected not to pursue recall as they did not wish to incur the further costs of doing so. This issue will now need to be addressed on appeal or by negotiation if that proves to be necessary.
Outcome
[21] I therefore resolve the remaining issues as follows:
(a) the judgment sum of AUD$13,350 is to be converted to New Zealand dollars as at 1 January 2008 (as per the plaintiffs’ memorandum);
(b)interest is to be calculated at the prescribed Judicature Act annual rates from 1 January 2008 to the date of judgment;
(c) BGW’s fees are not to be refunded;
(d) the final amount of the judgment sum is not to be reduced by the
$5,000 excess;
(e) my tentative view is that costs should be paid to the plaintiffs on a 2B
basis with an uplift of 10% together with disbursements as fixed by the Registrar.
7 See Steffensen v BGW Investments Limited (formerly Broadbase Otago Ltd), above n 1, at [11], [17] and [30].
[22] It is my expectation that any final quantification ought to be achieved by agreement without further recourse to me. Nevertheless leave is granted to file memoranda, no less than three pages on the issue of quantification only.
Solicitors:
Webb Farry, Dunedin
Darroch Forrest, Lawyers, Wellington
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